In this project-centered course, Darden's Ron Wilcox and BCG's Thomas Kohler will walk you through a real-world case, from problem statement to detailed analyses. You'll use all three lenses (cost, customer value, and competition) to recommend an optimal price—and then adjust to market disruptions. Utilizing the concepts, tools and techniques taught in previous Specialization courses—from basic techniques of economics to knowledge of customer segments, willingness to pay, and customer decision making to analysis of market prices, share, and industry dynamics—you will practice setting profit maximizing prices to improve price realization. You'll finish the course with a portfolio-building project that demonstrates your pricing prowess.

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Sep 01, 2017

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Excellent business and application oriented course

À partir de la leçon

Curveball

This week, you will respond to new developments in the LED light bulb market: a new competitor and new regulations. Just like in real life, you'll need to adjust your strategy when the competitive landscape changes and new regulations emerge and reconsider the retail marketplace and reevaluate the B2B market. You'll also head out into your own "real world" and do some detective work about the LED bulb market in your area and relate those finding to the case. We'll finish the course with BCG pricing experts sharing their insights into what makes pricing such a rewarding field.

Jean Manuel Izaret

Ronald T. Wilcox

Thomas Kohler

Associate Director, Pricing

Transcription

With price moves, I mean the active management of your prices through a process called war gaming. It contains seven steps and it starts with understanding the competitive dynamics. And it's no coincidence that this course about competitive pricing started about your competitors. It's really the starting point. Next is you need to set your own goal. What you're actually trying to solve or what you are trying to achieve. Ideally, this matches very closely with what overall business goal is. Too often, I find clients who say, fix my prices without trying to tell me what they're really trying to achieve. Based on that, you try to identify your own potential moves. You then chart possible competitive moves and, then you choose the best possible move to achieve your goal. And this really is the chess middle four that I introduced previously. Then, you execute your move but you're not done yet, because then you have to monitor the outcomes and competitive responses. Which might change your perception or some of your behaviors of your competitors which might lead to a redefinition of your own goals and so on and so forth. I developed a little example for you to kind of walk you through each of those steps. And the market I picked is residential furnitures. We have to deal with three companies, Smith, Modern, and Cozy. And they sell in three product categories, living room, dining room, and bedroom. And they cater to four customer segments, they're people who rent, they're the first home owners, family with kids who live in a family home, and empty nesters. Now, the first thing you want to do is, you want to define your market landscape. And, you're really setting up your chessboard here because you need to define what each playing field is about. You have, in the rows, the product categories, living dining and bed room. And you have in your files the segments, renters, first home owners and so on. Now for each of those playing fields, you have to determine what is the profit pool? So I'm not talking about the market size of revenues but really, where is the money made in the industry? So, the bubble sizes here define how much money is made and obviously, big means a lot and small means not so much. Now the next step is, you need to map the market place onto these. So for each of the playing fields, we're now saying, who is owning what share of the profit pool? So in this example here, Smith has three quarters of it and Modern and Cozy share the rest. In this example here, Cozy has probably 80% and you see how to read it. Now what this does tell us is, who is really strong in what area? And just to make the gameboard complete here, we color coded what kind of home turfs is it? And there are fields that are really dominated by one player. And there are other fields that are shared between the rest, two or even three. You can also get fancy and play around with the different shadings around how big the absolute pools are, so that you can focus primarily on the solid colored and don't pay too much attention to the smaller profit pools. Now, since we are playing a game, let stick to this image. I want you to think about your competitors and the gameboard really like a map where you have competing kingdoms. Where companies has their home turf, meaning, were they make the majority of the money, this is really their castles. So, this is segments with large profit pools that are dominated by one of the players. And in our example, Smith has kind of their main castle in the living room for empty nesters, a little bit of a smaller castle in the families with kids. Modern is kind of very strong with the first homeowners, and there they have the majority of profits coming from the dining room, a little bit from the living room. And Cozy really is in the bedroom and mostly with families with kids. There are other places on the gaming board which I called grasslands. And grasslands are kind of markets segments with limited profit pool. And, the shares of the profit are fluid in a sense that there is a lot of give and take happening here. And this gives you as an opportunity to manage your overall portfolio better. So you see here the grasslands and you can see these all kind of midsized to smaller sized profit pools that are shared between the players. Lastly, there are deserts. And these are market segments with very small profit pools, they're kind of niche segments that are typically out of focus with very little activity. Now, for all of these three types of playing fields, they, together create your competitive landscape. And you must fully understand the market, the profit pools, and the competitive landscape to make your optimal strategic pricing choice. Now that we've defined what the landscape is, we can really start looking into pricing. And here, you want to observe, first of all, what's actually happening. So, I signified here with those little symbols where we find aggressive pricing action or just other important things to know and understand. For example, there's aggressive pricing happening here for the empty nesters in the dining room. And after some digging, turns out that the different players here tried to secure floor spots with the retailers and therefore, run heavy promotions. There is a high win rate for Smith in the family with kids and the living room. So, what this kind might show us is that, Modern and Cozy, the two competitors, they're maybe a price too high. Cozy is setting the price umbrella for the bedroom. So, out of this, this is the stronghold in the family with kids, and, in the other segments for the bedroom category, they really managed to influence the price level overall. And, lastly, there's a lot of aggressive pricing happening in the family with kids in the dining room and the bedroom for the first homeowners. And, this was a curious one so, we kind of did more digging. And what we discovered is that, Modern really tries to expand their business from their castle in the category they are strong, meaning, they are moving laterally into a new segment. And at the same time, they are trying to leverage their strength within a segment, within the first homeowners and do more business In the bedroom. So let's wrap this up. I know what's on your mind. Where do you get all this competitive intelligence from? And to answer that question, I'll be back. To learn about your competitors, you really have to put on your detective's hat. And since I'm an overachiever, I'm fully tricked out. Now, in all seriousness, how to learn about your competitors, you have to look for the right things. And it starts with very basic questions, what exactly are they selling? Who are they selling to? Where do they make their money? What are they trying to achieve, what's, kind of, their strategic goal? Then, you have to leverage all the sources that are available. A lot can happen already, through observations. You're going to have a lot of conversations with people who know, either, people who work with you in the industry, who worked for a competitor in the past, who just observe the market themselves but also customers. Well, affiliations come in handy because oftentimes they share data among their members. At the end of the day, you'll have to do some of your own estimations. And lastly, some modeling with the computations. And don't dismiss. Facts and the details, logical and reasoning, intuition, and over time, you will build experience. And on the last point, try to find yourself a Watson, because talking someone through the logic what you think is happening, helps a lot, good luck.